New York State Department of Social Services, DAB No. 794 (1986)

DEPARTMENTAL GRANT APPEALS BOARD

Department of Health and Human Services

SUBJECT:  New York State Department of Social Services

Docket No. 85-198
Audit Control No. NY-82-AC
Decision No. 794

DATE: September 30, 1986

DECISION

The New York State Department of Social Services (State) appealed a
decision of the Office of Child Support Enforcement (Agency) disallowing
$1,507,312 in claims for federal financial participation (FFP) under
Title IV-D (Child Support and Establishment of Paternity) of the Social
Security Act (Act) filed by the State for the period of October 1981
through September 1982.  During the course of these proceedings, the
Agency reduced its disallowance to $1,039,363.  The claims now at issue
are $77,756 in training costs and $961,607 in costs allegedly offset by
interest earned on collected child support payments.

Summary

We uphold the Agency's determination on training costs because the State
did not show that the disputed training costs were allowable as the
"direct costs of short term training provided to IV-D agency staff." 45
CFR 304.23(d).  The training at issue was provided to state employees
with some alleged IV-D program responsibilities.  The State did not
present evidence sufficient to establish that the training was provided
to the employees in a capacity as "IV-D agency staff" allowable under 45
CFR 304.23(d).

We uphold in principle the Agency's determination on interest earned but
not properly accounted for by the State.  Under section 455(a) of the
Act, the State must deduct from its claims for IV-D program expenditures
an amount equal to "fees or income resulting from services provided"
under the IV-D program.  We have previously found that the Agency
reasonably interpreted this to include interest income on IV-D
collections.  Utah Department of Social Services, Decision No. 750,
April 30, 1986.  But, for the reasons.- 2 -

explained below, we permit the State a further opportunity to submit
evidence concerning the calculation of the amount of interest earned.

Background

The Child Support Enforcement Program was established, under Title IV-D
of the Act, to enforce child and spousal support obligations.  Basic
program functions include locating absent parents, determining
paternity, establishing the amount of the child support obligation, and
collecting support payments.  See, generally, section 451 of the Act.

Title IV-D of the Act authorizes grant funding for the costs of
operating the State's program.  In order to obtain FFP, the State must
operate the program in accordance with a federally approved state plan
for operating the program, an approved cost allocation plan for
identifying and allocating costs, and all applicable federal
regulations.

Some of the funds collected under Title IV-D are collected on behalf of
families which received assistance under the Title IV-A program, Aid to
Families with Dependent Children (AFDC).  Under section 457 of the Act,
child support collections on behalf of these families (AFDC child
support) are not distributed in full to the recipient families; funds
are withheld to reimburse the governmental entities which contributed to
the AFDC payments under a complex formula.  The federal share of the
IV-D funds withheld must be credited to the federal government by the
IV-A agency.  42 CFR 302.51(b)(2).

I.  Training costs

The Agency initially disallowed $88,457 in claims for FFP for training
costs which were found to be "not directly identifiable with the IV-D
program." Ex. 7.  As a result of documentation submitted by the State
during the course of this appeal, the Agency agreed to reduce the
disallowance by $10,701.  Agency Letter dated April 28, 1986.

The Agency based the disallowance on 45 CFR 304.23(d), which states that
FFP under Title IV-D is not available for educational and training costs
other than the "direct costs of short term training provided to IV-D
agency staff. . . ." 1/ The Agency found that the State had not been
specific enough

 

1/   Another exception to the prohibition on IV-D training costs applies
to cooperative agreements under 45 CFR 304.21.  That is not at issue in
this case.  - 3 -

in documenting the number of IV-D agency staff members participating in
the training activities involved.

The State argued that the training costs were allowable because the
claim was based on a proposed cost allocation plan under which the kind
of costs involved were properly allocated as direct costs to the IV-D
program. 2/ The State cited 45 CFR 302.16 (1981), 3/ which authorized
the State, under its State plan, to claim allocable costs if the State
had a cost allocation plan for properly charging the costs of
administration, services, and training activities.

We find that the State misinterpreted the regulations.  Whether or not
the costs were properly allocated, the issue is whether the costs were
allowable under a specific regulatory requirement.  The regulation at 45
CFR 302.16 was a general procedural rule, which merely required that a
State operate in conformity with an approved cost allocation plan.  That
regulation was not a definitive rule on cost allowability.  In contrast,
the regulation at 45 CFR 304.23(d) is a specific prohibition on federal
participation in certain costs.  This specific regulatory directive must
be read to control the more general procedural guideline.  The mere fact
that the State may have a cost allocation plan which allocates certain
costs does not make those costs allowable per se. 4/

 


2/   There was no dispute that the proposed cost allocation plan was a
valid method to use in calculating the allocation of costs.  See 45 CFR
95.517.  The precise provisions of the proposed cost allocation plan
were not submitted for the record.

3/   45 CFR 302.16 was revised and redesignated as 45 CFR 304.15 at 47
Fed. Reg. 17586 (April 23, 1982), effective May 24, 1982.  Neither party
has argued that this action substantively changed the regulation with
regard to this case, and we do not see any change material to the issue
here.

4/   Theoretically, a cost allocation plan might contain language which
specified the allowability of a particular cost item.  We offered New
York the opportunity to make such a showing here, but the State was
unable to produce any such evidence.  Nor did the State show that its
plan methodology was developed for the specific purpose of identifying
the extent to which the contested employees functioned as IV-D agency
staff.

       - 4 -

To show that the costs are allowable under 45 CFR 304.23(d).  the State
must show that the costs are within the narrow exception to the
prohibition on federal participation for training costs.  The State
submitted attendance records for courses under four of the six training
contracts at issue.  State's Reply Brief, Ex. 10.  Some of these
attendance records summarily identify attendees by program.  The Agency
accepted the categorization of all attendees designated as IV-D
employees, and contested only costs for those employees who were not
specifically identified as IV-D employees, or were identified as
employees under other federal-state programs who allegedly exercised
certain responsibilities under the IV-D program.  The State apparently
allocated the training costs for these "IV-D related employees" to each
of the programs to which the employees were somehow related, including
the IV-D program, but provided no further explanation of the connection
between the employees and the IV-D program.

Without evidence of specific IV-D responsibilities of the disputed
employees, there is not sufficient evidence to determine whether the
IV-D related employees are "IV-D agency staff" under 45 CFR 304.23(d),
or are other State or county employees who may perform an overhead
function, but are not IV-D agency staff. 5/  While, generally, overhead
costs may be properly allocated to and allowable under the IV-D program,
training costs for overhead personnel must be tested against the
prohibition and limited exceptions of 45 CFR 304.23(d).  The fact that
the State's proposed cost allocation plan might allocate some of the
salaries of the personnel at issue to the IV-D program is simply not
evidence that these personnel were "IV-D agency staff."

The State had adequate notice and several opportunities to submit
evidence into the record concerning whether the disputed employees were
IV-D agency staff.  The State merely provided the job titles of some
employees (such as county commissioner and staff development
supervisor).  The State failed to provide even a description of the
employees'

 

5/   Under general cost principles applicable to state and local
governments administering federal grants, statewide or countywide
central service functions (such as central personnel and administrative
services) may be allocated or billed to programs receiving the services.
See, generally, Office of Management and Budget Circular A-87 Att. A,
C.2.a (made applicable by 45 CFR 74.171 and 301.15(e)).  But the fact
that state or county personnel provide these kinds of services to a IV-D
agency does not make them IV-D agency staff.  - 5 -

responsibilities to the IV-D program.  Because of the general bar to
federal participation in training costs for non-IV-D agency staff under
the IV-D program, such proof is necessary.

We conclude that the State did not meet its burden of demonstrating that
the disputed costs were allowable under 45 CFR 304.23(d).  With respect
to those contracts for which no attendance records were submitted, the
State clearly did not justify the claims under the IV-D program.  For
the other contracts involving employees who were not specifically
identified as IV-D agency staff, the State failed to provide sufficient
proof that the costs fall within the exception to the bar on federal
participation on training costs at 45 CFR 304.23(d), by providing
evidence that these employees were IV-D agency staff.

Therefore, we uphold the Agency's disallowance, in the reduced amount of
$77,756.


II.  Interest Income

The Agency disallowed $1,418,855 which it stated was the federal share
of interest earned on child support payments collected by the State and
local districts.  During the course of this proceeding, the Agency
reduced its disallowance to $961,607.  Agency submission of June 20,
1986.  The disallowance was based on Audit Report Number NY-82-AC (Audit
Report, Ex. 3), which examined State accounts and the accounts of seven
counties administering Title IV-D programs for the State.  The Agency
alleged generally that this interest income should have been applied to
reduce program expenditures because it constituted "income resulting
from services provided under the [State] plan." Section 455(a) of the
Act (42 U.S.C. 655(a)), as amended by the Omnibus Reconciliation Act of
1981 (OBRA), Pub.L. 97-35, requires that the amount of any program
income be deducted from the amount of program expenditures for which the
State would otherwise claim FFP.

 a.   Is interest "income" for purposes of section 455(a)?

In a recent case, the Board upheld the Agency's determination that
interest on child support collections is "income" for purposes of
section 455(a) of the Act, and we incorporate that reasoning here.  Utah
Department of Social Services, Decision No. 750, April 30, 1986, pp.
1-7.  Below, we discuss some new arguments raised by the State in this
case.

       - 6 -

The State argued that since the interest income resulted from
"investment activity," the interest income was not within the bounds of
section 455(a) of the Act because it did not result from services
provided under Title IV-D.  The State noted that interest income is not
specifically mentioned in section 455(a), and that neither the Act nor
the State plan requires that states invest dormant funds.  The State
cited Perales v. United States, 598 F. Supp. 19 (S.D.N.Y. 1984), aff'd,
751 F.2d 15 (2d, Cir. 1984), for the proposition that the federal
government cannot impose upon states, as a grant condition, a
requirement to pay interest upon funds if there is no statutory mandate
for that grant condition.

We reject the State's argument that interest income earned on child
support collections is not required, in general, to be deducted from
program expenditures claimed under section 455(a) of the Act.  We agree
that investment of dormant funds is not required by the Act, and is not
directly addressed as a program activity, but that is not dispositive.
6/ It is undisputed that some Title IV-D collections in New York were
deposited in interest-bearing accounts.  The interest income here
resulted directly from the accumulation of principal balances from
program activities.  The interest in dispute would not have been earned
if the State had not been collecting child support payments pursuant to
the IV-D program.  Thus, all interest income resulted directly from the
IV-D collection services provided, whether or not the statute or
regulations required interest to be earned.

We know of no reasonable basis to find that income from interest should
be treated, under the statute, differently from other income.  The point
of section 455(a) is that federal funding needs should be offset by the
federal share of funds produced through program activities.  Interest
earned on collected funds meets this basic policy requirement.
Therefore, we conclude that the federal share of interest earned must be
deducted from program expenditures in claiming FFP, in accordance with
section 455(a). 7/

 

6/   Whether HHS could order states to invest funds is not an issue
before us.

7/   Although arising in a different program, this holding is consistent
with our decision in North Carolina Department of Human Resources,
Decision No. 361, November 30, 1981, aff'd, North Carolina v. Heckler,
584 F. Supp. 179 (E.D.N.C. 1984) in which we found that a state must
credit to the Medicaid program an amount (Continued on next page) - 7 -

We find the case before us to be distinguishable from the facts in
Perales.  In Perales, the court reversed a penalty assessment which was
based on interest income imputed to funds incorrectly claimed under the
Food Stamp Program, when there was no statutory authorization for such a
penalty.  In this case, the Agency is not assessing a penalty based on
imputed interest, but rather is merely requiring the State to properly
report program expenditures under applicable cost principles requiring
the State to account for the interest actually earned.  See New York
State Department of Social Services, Decision No. 721, February 6, 1986.
The offset of the federal share of interest earned against the federal
grant can reasonably be required under section 455(a). 8/

The purpose of the disallowance is not punitive; the disallowance is to
fairly distribute the benefit received by the State in the form of
interest on funds held for the IV-D program, as required by law.

As discussed in the Board's decision in Utah, the State had notice of
other reasonable and explicit bases in HHS' general grant requirements
(45 CFR Part 74) for treating the interest here as both program income
and as an applicable credit against the federal grant.  These
requirements are such that the result we reach here would be supportable
even

 

7/      Cont.  equal to the federal share of interest earned on Medicaid
     overpayment recoveries.  See also New York Department of Social
     Services, Decision No. 588, October 31, 1984.

8/   The Agency also relied upon a September 3, 1982 Action Transmittal,
OCSE-AT-82-8, which required that states reduce claimed expenditures by
the "total interest earned on collections made under the IV-D state
plan." The Agency subsequently codified this Action Transmittal at 45
CFR 304.50(b), 49 Federal Register 36764, 36772 (September 19, 1984).
The State argued that the Action Transmittal should not be applied in
this case, but did not argue specifically that it had relied on a
different interpretation of section 455(a), nor that it would be
adversely affected by retroactive application of the Agency's
interpretation.  Indeed, what we are addressing here is primarily a
question of whether the State can retain the full amount of what is
essentially a windfall to the program, or must share a fair part of it
with the federal government.  Thus, we do not think that the Agency is
precluded from applying its interpretation here.  - 8 -

in the absence of section 455(a) of the Act.  We incorporate those
determinations here.  See Utah, Decision No. 750, pp.  2-4.

 b.   Does the Intergovernmental Cooperation Act apply?

The Intergovernmental Cooperation Act (ICA), at 31 U.S.C.  6503
(previously codified at 42 U.S.C. 4213), states that a State is not
accountable for interest earned on grant money pending its disbursement.

This provision operates as a statutory exception to the general rule set
out at 45 CFR 74.47(a), which requires grantees to remit to the federal
government any "interest or investment income earned on advances of HHS
grant funds.  This includes any interest or investment income earned by
subgrantees." 9/

In this case, some of the child support collections, for families who
received assistance payments under the Title IV-A AFDC program, were
used to reimburse the State and federal governments for those assistance
payments.  Under section 457 of the Act and 45 CFR 302.51, the State is
required to distribute a portion of the child support collected for
families who received IV-A AFDC assistance payments to reimburse the
IV-A AFDC program.  The regulations at 45 CFR 302.51 provide that states
must credit the federal government for the federal share of these IV-D
collections through the IV-A agency.

This situation is like that in North Carolina Department of Human
Resources, Decision No. 361, November 30, 1982, aff'd, North Carolina v.
Heckler, 584 F. Supp 179 (E.D.N.C. 1984).  In North Carolina, the funds
involved had been collected from providers as overpayments.  Instead of
refunding the money to the various participating government entities,
the State deducted the amount from current funding claims.  Thus, North
Carolina claimed that the funds acquired the character of advances on
grant funding.  The Board rejected North Carolina's contention because
there was no evidence that the funds were being held pending
disbursement; rather, the Board found that the funds were held pending
repayment

 

9/   Some of the collections at issue in this case were distributed, in
full, directly to recipient families.  These collections are funds which
the State recovered from, and distributed to, private parties.  The
State did not contend that the ICA or 45 CFR 74.47 applies to these
child support collections.  Since these are not grant-in-aid funds, the
ICA simply does not apply.  - 9 -

of the federal share.  See also New York Department of Social Services,
Decision No. 588, October 31, 1984, p. 9.

The AFDC child support collections in this case reimburse the federal,
state, and local governments for AFDC payments already made; the funds
are held by the IV-D program only pending distribution to the AFDC
program.  Only after distribution and crediting of the federal share
could the funds be considered grant funds, because then they replace
federal funds.  As we discuss below, after distribution to the AFDC
program and crediting of the federal share, no interest earned would be
attributable to the IV-D program.

We conclude that the ICA exception for interest earned on advances of
grant funds does not apply to the funds while they are held by the IV-D
program because they are not grant funds at that time.

c.   At what point was interest on AFDC child support collections no
longer attributable to the IV-D program?

The State argued that the Agency improperly included in the disallowance
interest on funds from child support collections which reimbursed the
Title IV-A (AFDC) program for assistance payments made to recipient
families after the federal government had already been credited with
those funds. 10/ The State and the Agency disagreed as to when the
federal government was credited with its share of the AFDC child support
collections and when, therefore, interest for which the State was
accountable to the IV-D program ceased to accrue.

In the specific circumstances of Utah, the Board found that the federal
government could be credited with child support collections in two ways:
either by an accounting rendered on the quarterly report of both AFDC
expenditures and AFDC child support collections, or by an earlier
distribution, pursuant to section 457 of the Act and 45 CFR 302.51,
crediting the federal share of AFDC child support collections to the
federal account in the AFDC program and using the funds to redeem AFDC
program liabilities.  Utah, Decision No. 750, pp. 10-11.  In this case,
the State asserted that it credited the federal share of AFDC


10/  The State's argument here concerns only child support collections
for families which received IV-A AFDC assistance payments.  An undefined
proportion of the interest income at issue was earned from non-AFDC
collections.  The State did not contest the Agency's calculation of
interest on non-AFDC collections that were actually deposited in
interest bearing accounts.  - 10 -

collections by submitting a lower quarterly estimated claim for federal
financial participation in the AFDC program, at the beginning of the
quarter when it deducted estimated AFDC collections from estimated AFDC
expenditures. 11/ The State argued that, as a result, the State advanced
funds to pay AFDC expenditures and that subsequent AFDC child support
payments reimbursed the State for the funds so advanced.

The State argued that all aspects of distribution of the AFDC child
support collections were complete at the end of the month following the
month the funds were collected, when the State received monthly reports
from the local counties administering the two programs.  At that time,
the State reasoned, the counties credited the State with the non-local
share of the child support collections and no further distribution of
proceeds took place. 12/ The State alleged that it had already credited
the federal government with its share through the reduction of the
estimated claim at the beginning of the quarter.  Tr., pp. 7-13.

The Agency did not contest that the monthly county report distributed
the collected funds between the State and the local districts, but
pointed out that this was irrelevant, since the important question was
when the funds were distributed to the federal government.  The Agency
denied that the counties' monthly reports credited the federal
government with any share of the AFDC child support collections.  The
Agency argued that, under the quarterly reporting system, the only act
which actually credited the federal government with the AFDC collections
was the submission of the quarterly report.  The Agency contended that,
although no


11/  The State was required to reduce its quarterly estimated claim for
expenditures under the AFDC program by the quarterly estimated AFDC
collections pursuant to section 403(b)(2) of the Act.

12/  Throughout this whole so-called distribution process, the State
acknowledged, no cash actually changed hands.  The cash was collected by
local counties administering the IV-D program and placed in the county's
general fund.  The counties reported these funds in a monthly report to
the State, offsetting IV-D funds from expenditures claimed for IV-A AFDC
funding from the State.  The actual cash remained with the local county
after the monthly report was submitted because the county had settled
its accounts.  After the report was received by the State, the State
ceased to hold the counties accountable for these funds and the State
would reduce the next grant to the county by an equivalent amount.  Tr.,
p. 12.  - 11 -

cash changed hands, the quarterly report was the only time during the
quarter when the State settled accounts with the federal government,
offsetting IV-D funds against claims for funds for the cost of the AFDC
program. 13/

As the Board stated in Utah, "the State clearly bears a burden generally
of accounting for liabilities such as program income (see, e.g., 31
U.S.C. 6503(b)), and under section 455(a) clearly shares the
responsibility of accounting for income under title IV-D." pp. 11-12.
We agree in principle with the Agency that the important question is not
when the State settled its accounts with localities, but when the State
reasonably can be said to have credited the federal government with its
share of the IV-D collections.  The question arises in the context of a
complex, intrastate accounting process which is overseen by New York.
Since no funds actually changed hands or were physically distributed in
any manner, we find that the Agency would ordinarily be justified in
assuming that the IV-D collections had not been credited to the federal
account until the State formally settled its accounts with the federal
government at the end of the quarter, unless the State can affirmatively
establish an earlier point when the funds were credited.  Cf. Utah, pp.
11-13.

Certainly, the reduction of the State's estimated claim did not credit
the federal government with its share of the IV-D collections.  The
purpose of the estimated claims and advance payments is to ensure that
the State has sufficient cash flow to meet joint federal-state
obligations.  Estimated child support collections are deducted from
estimated AFDC payments because they reduce overall needs for cash
advances during the quarter, but this reduced estimate does not "credit"
the federal government with its share of actual AFDC child support
collections.  As we stated in Utah, the State's funding mechanism for
the AFDC program is not dispositive of our inquiry.  The IV-D program is
a separate program and "[n]othing in the law or otherwise

 

13/  The Agency originally argued during this proceeding that the
federal government was only credited with the funds on the date that the
quarterly expenditure report for the IV-A program was received.  After
the Board's Utah decision, the Agency issued PIQ 86-1, which stated that
the Agency would calculate interest on IV-D collections only until the
end of the quarter, regardless of when the quarterly report was actually
received.  While this, apparently, was the reason for the substantial
reduction in the disallowance, it does not affect the basic reasoning of
the Agency's position.  - 12 -

authorizes OCSE to ignore the requirements in IV-D because of a cash
flow problem in Title IV-A or, for that matter, in any other federal
program." Utah, Decision No. 750, p. 5.

We recognize, however, as we did in Utah, that a state may credit the
federal government in ways other than by settlement at the end of the
quarter.  As we explained in Utah, OCSE is correctly concerned with
accountability, but arguably arbitrary in imposing the date of the
quarterly report as a measure of that accountability, if there is
evidence that interest actually ceased to be earned as of an earlier
point.  What the State appears to be alleging is that it effectively, if
not formally, credited the federal government with the federal share of
IV-D collections by requiring local counties to offset AFDC support
collections against AFDC expenditures.  The State implied that this
system resulted in the county either using the AFDC support collections
directly to replace federal and state funding, or substituting an
equivalent amount of county funds.  However, New York provided only a
general conceptual allegation that this occurred, not actual documentary
evidence of any such disposition.

The point when the State effectively credited the federal government
with the federal share of IV-D collections must be established by
evidence of an act which changes the character of the funds, such as the
issuance of IV-A program warrants against the funds as in Utah, or by
documentation of an act which similarly substitutes IV-D collections for
federal funds.  Settlement with the local counties is relevant only if
the State used information obtained from the counties, for example, to
specifically reduce the amount of federal funds drawn under the State's
letter of credit, as shown by documentation of actual amounts and the
relationship of those amounts to IV-D collections.  Settlement with the
federal government would occur when the IV-D funds actually (not
theoretically) are substituted for federal grant funds or otherwise used
to reduce the drawdown of federal funds.  After that date, we agree that
the State should not be held liable for the interest at issue here,
since the underlying principal would have been effectively distributed.

In this case, the State has not provided any hard evidence of any act
changing the character of the IV-D funds, such as the issuance of IV-A
program warrants against the IV-D account in Utah or as discussed above.
Nor has the State met its burden of establishing that IV-D funds were
credited to the federal government by substitution for federal grant
funds which would otherwise be drawn under the State's letter of credit.
The State is free to commingle program funds and use any accounting
system which will meet the

      - 13 -

reporting requirements established in the Act and regulations.  The
State, however, must accept the burden of ensuring that its accounting
system provides adequate information and accounts for liabilities such
as program income.  Here, the State simply provided no substantial
documentary evidence to support its arguments.

However, we conclude that New York ought to have one last, limited
opportunity to make the showing required above.  It is not easy to apply
section 455(a) of the Act in the accounting context here.  New York's
accounting system is complex, involving considerable financial activity
related to the intricacies and interactions of the IV-A and the IV-D
programs at both state and county levels.  The issue of when interest
ceases to be earned has only been developed recently by the Agency.  New
York fairly may not have understood its burden or the need for more
detail to justify its position.

Within 15 days from receipt of this decision, the State must submit a
statement of whether it has additional information to submit, and a
description of that information.  Thereafter, the State will have 30
days to submit this information to the Agency (or such longer period as
the Agency determines appropriate).  If the State cannot produce
satisfactory information to justify an earlier date, we find that the
Agency properly used the end of the quarter as the date when the federal
government was credited with the principal sums at issue, and properly
calculated the amount of interest.

In sum, we uphold the Agency's calculation with respect to the disputed
interest income, subject to reduction if the State can submit evidence
that the principal sums were actually credited to the federal government
before the end of the quarter and that, therefore, no interest
attributable to the IV-D program was earned thereafter.

d.  Interest questioned on other grounds.

In its reply brief, New York argued briefly that part of the
disallowance should be overturned because it was attributable to
counties in which interest allegedly was not actually earned.  Reply
Brief, p. 11.  The State did not develop any issue concerning the
Agency's methodology in calculating these amounts; rather, the State
merely presented a telephone survey conducted of certain county IV-D
coordinators which the State said showed no interest was earned.  We
find this evidence questionable.  The survey would have been more
credible if it had involved treasury or finance officials, since
interest deposited in a general fund likely would earn interest even if
none was credited to the IV-D program per se.  In any event, since the
State now - 14 -

has an opportunity to present evidence concerning the actual amounts of
interest earned, the State will have a chance to make a more definitive
showing on this matter, if it can.

Conclusion

We conclude by upholding the disallowance for training costs in the
amount of $77,756.  We also uphold the disallowance for interest income
in the amount of $961,607, subject to reduction if the State provides
evidence, consistent with the principles outlined in this decision, that
a lesser amount of interest was actually earned.  This evidence must be
provided to the Agency in accordance with the schedule set out above.


 ________________________________ Judith A. Ballard

 ________________________________ Cecilia Sparks Ford

 ________________________________ Norval D. (John) Settle
 Presiding Board